How To Maximise Returns From Renovating

Buying a property that needs a little improving can be a smart investment move. Not only can renovating create instant equity for you, but it also increases your immediate rental returns and can positively impact your property’s long-term capital growth.

Of course, that’s only the case if you’re smart about how you renovate. For every positive renovation story out there, there are plenty more ‘reno fails’.

I’ve seen my fair share of not-so-successful renovations over the years and I can confidently say that just as you can make money using this strategy, you can just as easily lose it!

If you’re considering a renovation strategy, here are some basic principles for revamping your investment property that can give you the most bang for your buck:

1. Renovate for a return

The secret of successful renovators is that they only make visible changes that will increase the value of the home. To help you with this:

• Do your research on the types of features tenants in the area are looking for.
• When choosing fixtures and fittings, don’t get carried away with purchases that cost more than the property requires (for example, put back the fitting fancy door handles that cost $70 each, when some good quality $10 ones would do the same job).
• Have several real estate agents review and value the property – they should be able to tell you the maximum sale price for homes in the street, and advise you on the types of renovations that appeal most to the market.
• Remember: it’s easy to over-capitalise. Renovations that increase the value of the property beyond the street’s ceiling price are likely to be wasted.

2. Prioritise the biggest impact renos

Once you know which changes will increase the value of the home, prioritise the ones that will make the most impact.

• Kitchens and bathrooms: Obviously, a fresh kitchen and bathroom is a drawcard for any tenant or buyer. Renovating these areas can be as simple as new paint, modern doorhandles, new benchtops and contemporary fixtures, or it could be a complete demolition and rebuild, depending on the condition of the existing room and your budget.
• Exteriors: Potential tenants can be so put off by a messy or dilapidated frontage that they drive by without even looking inside. Sprucing up grassy areas, tidying paths, repainting rendered walls and guttering, and planting modern garden beds create instant street appeal.
• Flooring: New floors freshen up a home considerably, particularly if the current flooring dates the building (think orange linoleum). There are so many affordable options for flooring now that add instant style and modernise a home for next to nix.

3. Deal with the defects

Water marks, rotting or water-damaged architraves and other issues that present an obvious problem must be addressed, to avoid unhappy tenants and also to save yourself cash on further maintenance down the road. Even if these are small-scale issues, they can give the impression that the property has ‘problems’, which can lessen the home’s appeal and perceived value.

It’s also a good idea to avoid buildings with major structural issues, unless you have serious building and construction skills. Properties that require extensive repairs rather than revamping may cost you a bucket in the long run, once the expenses, holding costs and tenant down-time are calculated.

4. Be a smart renovator

If you’re planning some major renovations, consider using an experienced project manager. They can save you money by avoiding mistakes and budget blowouts, and keeping the project running on time.

Also make sure you collect at least three quotes for every job, and do a quality check before deciding who to go with. We’re all tempted to go with the cheapest quote, but it doesn’t always work out best – especially if the supplier turns out to be unreliable, uses cheap fittings or cuts corners.

Lastly, remember that certain elements of renovations on investment properties are tax deductible, even renovations that were done before you bought the building. You’ll need to get a depreciation schedule before and after any renovations, but a qualified quantity surveyor and a knowledgeable accountant will be able to guide you through the process.

Renovating is a proven way to add value to your property and you don’t need to do anything drastic to get a good return. Fresh interior paint, new door handles, tidying up yards and adding mod cons like dishwashers and air conditioners are simple and relatively inexpensive fixes and fittings, which is a great place to start for first-timers. Look for renos that add amenities and new features to the home, as these will add appeal for potential tenants and buyers and drive the biggest return on your reno dollars.